Karnal Bunt; Compensation for Wheat Seed and Straw in the 1995- 1996 Crop Season

DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

7 CFR Part 301

[Docket No. 96-016-21]

RIN 0579-AA83

Karnal Bunt; Compensation for Wheat Seed and Straw in the 1995-

1996 Crop Season

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Proposed rule.

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SUMMARY: We are proposing to amend the Karnal bunt regulations by

adding compensation provisions for growers and seed companies for the

loss in value of wheat seed and straw in the 1995-1996 crop season. The

payment of compensation is necessary in order to reduce the economic

impact of the Karnal bunt regulations on affected wheat growers and

other individuals.

DATES: For comments on all portions of this proposed rule except the

rule's information collection and recordkeeping requirements that are

subject to the Paperwork Reduction Act, consideration will be given

only to comments received on or before August 29, 1997. For comments on

the Paperwork Reduction Act requirements of this proposed rule,

consideration will be given only to comments received on or before

September 29, 1997.

ADDRESSES: Please send an original and three copies of your comments to

Docket No. 96-016-21, Regulatory Analysis and Development, PPD, APHIS,

suite 3C03, 4700 River Road Unit 118, Riverdale, MD 20737-1238. Please

state that your comments refer to Docket No. 96-016-21. Comments

received may be inspected at USDA, room 1141, South Building, 14th

Street and Independence Avenue SW., Washington, DC, between 8 a.m. and

4:30 p.m., Monday through Friday, except holidays. Persons wishing to

inspect comments are requested to call ahead on (202) 690-2817 to

facilitate entry into the comment reading room.

FOR FURTHER INFORMATION CONTACT: Mr. Mike Stefan, Operations Officer,

Domestic and Emergency Operations, PPQ, APHIS, 4700 River Road Unit

134, Riverdale, MD 20737-1236, (301) 734-8247.

SUPPLEMENTARY INFORMATION:

Background

Karnal bunt is a fungal disease of wheat (Triticum aestivum), durum

wheat (Triticum durum), and triticale (Triticum aestivum X Secale

cereale), a hybrid of wheat and rye. Karnal bunt is caused by the smut

fungus Tilletia indica (Mitra) Mundkur and is spread by spores. In the

absence of measures taken by the U.S. Department of Agriculture (USDA)

to prevent its spread, the establishment of Karnal bunt in the United

States could have significant consequences with regard to the export of

wheat to international markets. The regulations regarding Karnal bunt

are set forth in 7 CFR 301.89-1 through 301.89-14. Among other things,

the regulations define areas regulated for Karnal bunt and restrict the

movement of certain regulated articles, including wheat seed and grain,

from the regulated areas.

In an interim rule effective June 27, 1996, and published in the

Federal Register on July 5, 1996 (61 FR 35102-35107, Docket No. 96-016-

7), the Animal and Plant Health Inspection Service (APHIS) amended the

regulations to provide compensation for certain wheat growers and

handlers, owners of grain storage facilities, and flour millers in

order to mitigate losses and expenses incurred in the 1995-1996 crop

season because of actions taken by the Secretary to prevent the spread

of Karnal bunt. On May 6, 1997, we published a document in the Federal

Register (62 FR 24745-24753, Docket No. 96-016-17, effective April 30,

1997) making final the July 5 interim rule, and adding compensation

provisions for handlers of wheat that was tested and found negative for

Karnal bunt and participants in the National Karnal Bunt Survey whose

wheat tested positive for Karnal bunt in the 1995-1996 crop season.

Several comments on the July 5 interim rule requested compensation for

loss in value of wheat seed and straw in the 1995-1996 crop season. We

stated in the May 6 final rule that we were still considering what

compensation was appropriate for these losses. The provisions of the

compensation plan for seed and straw are proposed in this document.

The Agency has identified three principles for deciding whether to

provide compensation. First, compensation may be appropriate where

quarantine and emergency actions result in economic costs over and

above those that would result from the normal operation of market

forces. Payment of compensation would reflect the incremental burdens

of complying with regulatory requirements insofar as market forces

would not otherwise impose similar or analogous costs. Second,

compensation may be appropriate where parties undertake actions that

confer significant benefits on others. Under this principle, payment of

compensation would be intended to overcome the usual disincentives to

produce such benefits. Third, compensation may be appropriate where a

small number of parties necessarily bear a disproportionate share of

the burden of providing such benefits. This principle rests on the

widely shared belief that burden-sharing is a fundamental principle of

equity. Our decisions concerning the compensation we are proposing for

seed and straw were made after consideration of these three principles.

Compensation for Seed

In the 1995-1996 crop season, areas in Arizona, California, New

Mexico, and Texas were regulated for Karnal bunt. For 1995-1996 crop

season wheat, commercial shipments of wheat to be used for seed were

prevented from moving outside of the regulated areas. Wheat seed grown

in the regulated areas could be planted within the regulated areas, but

only after it tested negative for Karnal bunt and was treated. These

restrictions prevented most wheat seed from being shipped to intended

markets. Growers and seed companies were permitted to sell their wheat

seed for use as grain (for milling or animal feed). However, even under

normal market conditions, the value of grain is less than for seed. In

the 1995-1996 crop season, grain from the regulated areas was also

decreased in value because of the Karnal bunt regulations. It is

estimated that 1.5 million bushels of

[[Page 40757]]

wheat seed grown in the regulated areas sustained loss in value of

between $5 and 6 million in the 1995-1996 crop season.

Seed companies had contracts with growers in the regulated areas to

produce commercial quantities of wheat seed (a seed company acquires

wheat and processes it for sale as seed). Under a typical contract, a

grower agreed to produce a specified quantity of seed for a price that

was normally equal to the price the wheat would be worth as grain plus

a 30 to 50 cents per bushel seed premium. This premium reflects the

added precautions taken by the grower in production to ensure seed

integrity and cleanliness. Some contract prices, including the seed

premiums, were set in the contracts prior to the discovery of Karnal

bunt in Arizona in March 1996. However, many of the contracts specified

that the prices were to be set at harvest, which was after the

discovery of Karnal bunt. Contract prices set at harvest were,

therefore, likely to reflect the loss in value of wheat seed due to the

restrictions on moving seed in the Karnal bunt regulations. Growers

experienced a loss in the expected value of their seed if seed

companies did not pay the full contract price specified in the contract

prior to harvest, or if a price was determined in the contract at

harvest, after the discovery of Karnal bunt.

For seed companies, the price for which they are able to sell their

seed consists of the market value for wheat grain plus the seed margin.

The seed margin is the difference between the value of wheat sold as

seed and wheat sold as grain, and reflects various costs to seed

companies for producing seed, including seed premiums paid by the seed

company to the grower. Seed companies also contract with growers to

produce both public and private variety seed. Private variety seed is

seed that has a plant variety protection patent. In the case of private

variety seed production, the seed margin would also reflect premiums

paid by the seed company to the private firm that owns the plant

variety protection patent. Seed margins in the regulated areas average

$4.50 per bushel for private variety seed and $2.40 per bushel for

public variety seed.

In the 1995-1996 crop season, seed companies with wheat seed

produced in the regulated areas experienced loss in the expected value

of their seed because, under the Karnal bunt regulations, they were

unable to move their seed to intended markets outside the regulated

areas. Seed companies could have sold their seed as grain, for milling

or to make animal feed. However, they would have lost the seed margin,

and they would have had to sell the seed for the reduced prices offered

for wheat grain from the regulated areas in the 1995-1996 crop season.

We are proposing to offer compensation to wheat seed growers and

seed companies to help mitigate the losses in the value of wheat seed

in the 1995-1996 crop season due to the Karnal bunt regulations. The

proposed regulations for wheat seed and straw compensation would be

added to Sec. 301.89-14, which contains compensation provisions for

losses incurred in the 1995-1996 crop season. In the regulations, we

would refer to wheat seed as ``propagative wheat'' or ``wheat grown for

propagative purposes.'' Because the Secretary of Agriculture is

authorized to compensate only individuals who are in States for which

an extraordinary emergency has been declared, we would state that

growers and seed companies would be eligible for compensation only if

the wheat was grown in a State where the Secretary has declared an

extraordinary emergency. Further, pursuant to an interim rule effective

on April 25, 1997, and published in the Federal Register on May 1, 1997

(62 FR 23620-23628, Docket 96-016-19), some areas that were regulated

for Karnal bunt in the 1995-1996 crop season are no longer regulated

for Karnal bunt. For this reason, we would stipulate that the wheat for

which compensation is being claimed must have been grown in an area of

that State that was regulated for Karnal bunt or under Emergency Action

Notification (EAN)(PPQ Form 523) for Karnal bunt during the 1995-1996

crop season. (EANs are issued by APHIS inspectors to temporarily

regulate an area, in accordance with Sec. 301.89-3(d) of the Karnal

bunt regulations.)

Compensation for Growers Who Sold Propagative Wheat

As discussed previously in this document, growers experienced a

loss in the expected value of their 1995-1996 crop season propagative

wheat if seed companies did not pay the full contract price specified

in the contract prior to harvest, or if a price was determined in the

contract at harvest, after the discovery of Karnal bunt in March 1996.

We are not proposing to pay compensation to growers if a price was

determined in the contract prior to the discovery of Karnal bunt and

that contract price was honored by the seed company. These growers

would have received the full expected value of their propagative wheat.

Growers had the option of selling their propagative wheat as grain,

instead of selling it to the seed company with which it was contracted.

Growers could then move the wheat out of the regulated areas under less

burdensome restrictions than those that applied to commercial shipments

of wheat seed. Some growers who chose to do this also filed

compensation claims under the regulations for 1995-1996 crop season

nonpropagative wheat (see Sec. 301.89-14(b)). These growers would still

have experienced the loss of the expected seed premium. We are

proposing, therefore, that growers of wheat grown for propagative

purposes be eligible for different levels of compensation depending on

whether they sold their wheat under contract to a seed company or they

sold their wheat elsewhere for nonpropagative purposes. If they sold

their wheat elsewhere for nonpropagative purposes, compensation would

depend on whether or not they claimed compensation under the

regulations for nonpropagative wheat.

Compensation for growers who sold their wheat under contract to a

seed company would be as follows:

1. If the wheat was grown under contract and a price was determined

in the contract on or before March 1, 1996, and the contract price was

not honored by the seed company, the compensation rate would equal the

contract price (CP) including the seed premium specified in the

contract (SP)(contract) minus the higher of either the salvage value

(SV) plus the actual seed premium received by the grower, if any,

(SP)(actual), or the actual price received by the grower (AP) plus the

actual seed premium received by the grower, if any, (SP)(actual). The

equation for this compensation would be as follows: Compensation rate =

[CP + SP(contract)]--[higher of (SV + SP(actual)) or (AP +

SP(actual))].

2. If the wheat was grown under contract and a price was determined

in the contract after March 1, 1996, the compensation rate would equal

the estimated market price for grain (EMP) plus the seed premium

specified in the contract (SP)(contract) minus the higher of either the

salvage value (SV) plus the actual seed premium received by the grower

(SP)(actual), or the actual price received by the grower (AP) plus the

actual seed premium received by the grower (SP)(actual). The equation

for this compensation would be as follows: Compensation rate = [EMP +

SP(contract)]--[higher of (SV + SP(actual)) or (AP + SP(actual))].

Compensation for growers of propagative wheat who sold their wheat

under contract to a seed company would not exceed $2.80 per bushel

under any circumstances. This maximum compensation amount

[[Page 40758]]

represents the maximum $2.50 per bushel compensation for nonpropagative

wheat provided in the regulations (see Sec. 301.89-14(b)) plus a $.30

seed premium.

The salvage value used in the calculations described above is

intended to represent the actual value of wheat from the regulated

areas as a result of Karnal bunt. The salvage values used for

propagative wheat would be the same as those used for nonpropagative

wheat compensation in the 1995-1996 crop season (see Sec. 301.89-

14(b)(3)). As with nonpropagative wheat, the salvage values for

propagative wheat would vary depending on whether or not the wheat was

positive or negative for Karnal bunt, and the use for which the wheat

was sold. In each case, the amount of the actual price or the salvage

value of the propagative wheat would include the value of any proceeds

accrued through insurance claims, judgments, or from any other source.

However, the minimum salvage value under any circumstances would be

$3.60 per bushel.

The estimated market price used in the calculations described above

is intended to represent what the value of the wheat would have been if

there were no regulations for Karnal bunt. Estimated market prices were

used in calculating compensation for nonpropagative wheat in the 1995-

1996 crop season. Estimated market prices were calculated for

nonpropagative durum wheat and nonpropagative hard red winter wheat for

the harvest months of May and June. The estimated market prices for

durum wheat were calculated based on the following: the daily closing

cash prices for choice milling durum wheat traded on the Minneapolis

Grain Exchange during the period of May 1 to June 30, 1996, adjusted to

account for the handling and transportation charges incurred in getting

the wheat from the regulated areas in California and Arizona to the

central market in Minneapolis. These adjustments were based on the

average difference between the Minneapolis cash price and the cash

prices within the regulated areas for 1995. Estimated market prices for

hard red winter wheat were calculated in a similar manner, based on the

daily closing futures prices for the July hard red winter wheat

contract traded on the Kansas City Board of Trade during the period of

May 1 to June 30, 1996, adjusted to account for the handling and

transportation charges incurred in getting the wheat from a central

point in the regulated areas to the market in Kansas City. These

adjustments were based on the average difference between the Kansas

City futures price and the cash prices within the regulated areas for

1995. We would use the same estimated market prices that were

calculated for nonpropagative wheat for the propagative wheat

compensation calculations in this proposed rule.

Growers of 1995-1996 crop season wheat grown for propagative

purposes who sold the wheat for nonpropagative purposes would be

eligible to receive compensation as follows:

1. If the grower has not claimed compensation under the regulations

for nonpropagative wheat, the compensation rate would equal the

estimated market price for grain (EMP) minus the actual price received

by the grower (AP), plus the seed premium specified in the contract the

grower had with a seed company (SP). The equation for this compensation

would be as follows: Compensation rate = (EMP--AP) + SP.

2. If the grower has claimed compensation under the regulations for

nonpropagative wheat (Sec. 301.89-14(b)), the compensation rate would

be equal to the seed premium specified in the contract the grower had

with a seed company.

Compensation for Seed Companies That Sold Propagative Wheat

As discussed previously in this document, seed companies

experienced a loss in the expected value of propagative wheat produced

in the regulated areas because, under the Karnal bunt regulations, they

were unable to move their wheat to intended markets outside the

regulated areas. Seed companies could have sold their wheat as grain,

for milling or to make animal feed. However, they would have lost the

seed margin, and they would have had to sell the seed for the reduced

prices offered for wheat grain from the regulated areas in the 1995-

1996 crop season.

Unlike growers, who typically sell their wheat seed at harvest,

seed companies sometimes keep wheat seed inventories from past crop

seasons on hand. These wheat inventories were subject to the same

restrictions on movement as 1995-1996 crop season wheat. For this

reason, we are proposing that seed companies with 1995-1996 crop season

wheat grown for propagative purposes and seed companies with

propagative wheat inventories in their possession that were unsold as

of March 1, 1996, be eligible to receive compensation.

Further, as discussed previously in this document, an interim rule

effective on April 25, 1997, and published in the Federal Register on

May 1, 1997, amended the regulated areas so that some areas that were

regulated for Karnal bunt in the 1995-1996 crop season are no longer

regulated for Karnal bunt. Many seed companies in the previously

regulated areas had held their 1995-1996 crop season wheat seed. These

seed companies are now able to move their wheat for propagative

purposes without restriction. However, because the wheat seed market is

down this year as compared to last year, and because the regulations

prevented them from marketing their wheat last year when they may have

received a higher price, the seed companies will probably still

experience a loss in value of their propagative wheat.

Seed companies handling propagative wheat grown in areas that

remain regulated with regard to seed would continue to be subject to

the restrictions on moving wheat outside of the regulated areas that

apply to commercial shipments of seed, and will likely sell their wheat

as grain. We are proposing separate compensation for seed companies

depending on whether the propagative wheat is sold for nonpropagative

purposes (such as milling or animal feed) or for propagative purposes

(planting). We are also proposing different compensation for seed

companies that sold propagative wheat for nonpropagative purposes

depending on whether or not they have already claimed compensation

under the regulations for nonpropagative wheat (see Sec. 301.89-14(b)).

Compensation for seed companies that have sold propagative wheat

for nonpropagative purposes, and that have not claimed compensation

under the regulations for nonpropagative wheat, would be as follows:

1. If the wheat was grown in the 1995-1996 crop season, was under

contract, and the seed company honored the contract by paying the

grower the full contract price, including the seed premium, the

compensation rate would equal the estimated market price for grain

(EMP) plus the seed margin (SM) minus the higher of either the actual

price received by the seed company (AP) or the salvage value (SV). The

equation for this compensation would be as follows: Compensation rate =

EMP + SM--(higher of AP or SV). The seed margin would be set at $4.50

per bushel for private variety seed and set at $2.40 per bushel for

public variety seed. However, compensation would not exceed $7.00 per

bushel for private variety seed and $4.90 per bushel for public variety

seed under any circumstances. (The maximum compensation amounts

represent the seed margins plus the maximum $2.50

[[Page 40759]]

compensation for nonpropagative wheat provided in the regulations (see

Sec. 301.89-14(b)).

2. If a seed company had wheat inventories from past crop seasons

on hand as of March 1, 1996, the compensation rate would equal the

estimated market price for grain (EMP) plus the seed margin (SM) minus

the higher of either the actual price received by the seed company (AP)

or the salvage value (SV). The equation for this compensation would be

as follows: Compensation rate = EMP + SM--(higher of AP or SV). The

seed margin would be set at $4.50 per bushel for private variety seed

and set at $2.40 per bushel for public variety seed. However,

compensation would not exceed $7.00 per bushel for private variety seed

and $4.90 per bushel for public variety seed under any circumstances.

Seed companies that have sold propagative wheat for nonpropagative

purposes, and that have claimed compensation under the regulations for

nonpropagative wheat, would be eligible for a compensation rate equal

to the seed margin. The seed margin would be $4.50 per bushel for

private variety seed and $2.40 per bushel for public variety seed.

The compensation we are proposing for seed companies that sold

propagative wheat for propagative purposes would be as follows: The

compensation rate would equal the estimated market price for grain

(EMP) plus the seed margin (SM) minus the higher of either the actual

price received by the seed company (AP), or the salvage value (SV). The

equation for this compensation would be as follows: Compensation rate =

(EMP + SM)--(higher of AP or SV). The seed margin would be $4.50 per

bushel for private variety seed and $2.40 per bushel for public variety

seed. However, compensation would not exceed $7.00 per bushel for

private variety seed and $4.90 per bushel for public variety seed under

any circumstances.

The salvage values and estimated market prices used in the

calculations described above for seed companies would be the same as

discussed previously in this document for growers of propagative wheat.

In each case, the amount of the actual price or the salvage value of

the propagative wheat would include the value of any proceeds accrued

through insurance claims, judgments, or from any other source.

Growers and Seed Companies--To Claim Compensation

We are proposing that compensation payments for the loss in value

of propagative wheat would be issued by the Farm Service Agency (FSA)

of the U.S. Department of Agriculture. Growers and seed companies that

are eligible for compensation under this proposed rule would have to

submit the same documents to the local FSA county office, as follows: A

grower or seed company would have to submit a Karnal Bunt Compensation

Claim form, provided by FSA. If the wheat was grown in an area that is

not a regulated areas, but for which an EAN for Karnal bunt has been

issued, the grower or seed company would have to submit a copy of the

EAN. A grower or seed company would also have to submit a copy of the

contract under which the wheat was grown; a copy of the Karnal bunt

certificate issued by APHIS that shows the Karnal bunt test results; a

copy of the receipt for the final sale of the wheat, showing the

intended use for which the wheat was sold, total bushels sold, and the

total price received by the grower or seed company; and verification as

to the actual (not estimated) weight of the wheat for which

compensation is being claimed (such as a copy of the limited permit

under which the wheat is being moved, or other verification). In

addition, a seed company that is claiming compensation on seed

inventories would have to certify to FSA that the propagative wheat was

in the seed company's possession as of March 1, 1996.

Other Seed Company Compensation

The compensation for seed companies with propagative wheat proposed

above applies only to seed companies that sold their wheat. We are

proposing that seed companies would be eligible to receive compensation

under an additional circumstance: If a seed company is not able to or

elects not to sell 1995-1996 crop season wheat grown for propagative

purposes or propagative wheat inventories in their possession that were

unsold as of March 1, 1996, the compensation rate would equal $7.00 per

bushel for private variety seed and $4.90 per bushel for public variety

seed. These amounts represent the seed margins of $4.50 for private

variety seed and $2.40 for public variety seed plus the maximum $2.50

per bushel compensation for nonpropagative wheat provided in the

regulations (see Sec. 301.89-14(b)). Compensation would only be paid if

the seed company has destroyed the wheat by burying it in a sanitary

landfill or other site that has been approved by APHIS.

Compensation for seed companies under this additional circumstance

would be necessary in a small number of cases where seed companies had

their seed treated with a fungicide and bagged. Such treatment is

typical in seed production to make it suitable for planting and so that

it can be stored for extended periods, but it renders the wheat

unusable for nonpropagative purposes. Most seed companies did not treat

and bag their 1995-1996 crop season wheat seed. Some seed companies,

however, had wheat seed from past crop seasons on hand that had already

been treated in this manner. If these seed companies choose not to or

are unable to market their wheat for planting within the regulated

areas, then they may bury their wheat and qualify for the compensation

described above.

To claim compensation under this additional circumstance, a seed

company would have to submit documents to the local FSA county office,

as follows: A seed company would have to submit a Karnal Bunt

Compensation Claim form, provided by FSA. If the wheat was grown in an

area that is not a regulated area, but for which an EAN for Karnal bunt

has been issued, the seed company would have to submit a copy of the

EAN. A seed company would also have to submit a copy of the contract

under which the wheat was grown and verification of how much wheat was

buried, in the form of a receipt from the sanitary landfill or

verification signed by an APHIS inspector. In addition, a seed company

that is claiming compensation on seed inventories would have to certify

to FSA that the propagative wheat was in the seed company's possession

as of March 1, 1996.

Compensation for Straw

Some growers contract to sell wheat straw to supplement their wheat

grain income. Straw is sold for use at places such as racetracks,

highway shoulders, feed yards, and parks for erosion control and to

minimize muddy conditions. Wheat straw is listed in the Karnal bunt

regulations as a regulated article. In the 1995-1996 crop season, wheat

straw could not move outside of the regulated areas because it could

not meet the conditions in the regulations for moving regulated

articles outside the regulated areas (see Sec. 301.89-5). This

prevented wheat straw producers in the regulated areas from shipping

their 1995-1996 crop season wheat straw to the intended markets. Some

wheat straw was sold to alternative markets within the regulated areas

for a lower price. However, most wheat straw was not able to be sold.

We are adding a new Sec. 301.89-14(i) to provide compensation for

wheat straw producers for the losses experienced because of the Karnal

bunt regulations. We would define wheat straw producers to include

either growers who bale their

[[Page 40760]]

own wheat straw or individuals contracted by growers to remove wheat

straw from the growers' fields. We would require that the wheat straw

producers must have produced the straw under contract. This would

ensure that compensation is not claimed by individuals who did not

intend to sell their straw, but produced it for their own use.

Producers of wheat straw made from wheat grown in the regulated areas

in the 1995-1996 crop season would be eligible to receive compensation

on a one-time-only basis at the rate of $1.00 per 80-pound bale or

$1.25 per hundredweight. Producers of straw contracted for sale would

be eligible for compensation regardless of whether or not the straw was

delivered to the contractee. Compensation payments would be issued by

the Farm Service Agency (FSA). To claim compensation, a wheat straw

producer would have to submit a Karnal Bunt Compensation Claim form,

provided by FSA, and a copy of the contract under which the straw was

produced to the local FSA county office.

Deadline for Claiming Compensation

We are proposing to set a deadline for claiming compensation under

this proposed rule. Claims for either seed or straw compensation would

have to be received by FSA on or before 60 days after the date that the

provisions of this proposed rule are made final. The Administrator

could extend this deadline, upon request in specific cases, when

unusual and unforeseen circumstances occur which prevent or hinder a

claimant from requesting compensation prior to that date.

Executive Order 12866 and Regulatory Flexibility Act

This proposed rule has been reviewed under Executive Order 12866.

This rule has been determined to be economically significant for

purposes of Executive Order 12866 and, therefore, has been reviewed by

the Office of Management and Budget.

The quarantine and regulations for Karnal bunt were established by

a series of interim rules and a final rule published in the Federal

Register on October 4, 1996. A final rule effective on April 30, 1997,

and published in the Federal Register on May 6, 1997, amended the

regulations to provide compensation for certain wheat grain growers and

handlers, owners of grain storage facilities, flour millers, and

participants in the National Karnal Bunt Survey in order to mitigate

losses and expenses incurred in the 1995-1996 crop season because of

actions taken by the Secretary of Agriculture to prevent the spread of

Karnal bunt. The economic impact of the series of interim rules and the

October 1996 final rule establishing the Karnal bunt quarantine and

regulations, and the May 1997 final rule on compensation, was discussed

in a regulatory flexibility analysis and regulatory impact analysis

also published in the Federal Register on May 6, 1997 (62 FR 24753-

24765, Docket No. 96-016-20). The analyses estimate that losses due to

the discovery of Karnal bunt and the subsequent emergency regulatory

actions amounted to $44 million (see table below). These losses were

associated with the plowdown of fields in New Mexico and Texas that

were known to be planted with Karnal bunt-infected seed,

decontamination of grain storage facilities, the decline in market

value of wheat grain testing either positive or negative for Karnal

bunt, treatment of millfeed required by the regulations, the decline in

market value of wheat seed and straw, and damages to combine harvesters

due to required disinfection treatment.

In order to alleviate some of the economic hardships caused by the

Karnal bunt regulations, and to ensure full and effective compliance

with the regulatory program, compensation to mitigate certain losses

was offered to affected parties in the regulated areas. A discussion of

losses and the rationale for compensation can be found in the

regulatory flexibility analysis and regulatory impact analysis cited

above. Funding for compensation in the amount of $39 million has been

made available through apportionment action (transfers from the

Commodity Credit Corporation). Of the $39 million, $26.5 million has

been allocated specifically for compensation for plowdown,

decontaminating grain storage facilities, loss in value of grain, and

millfeed treatment.

This proposed rule would amend the Karnal bunt regulations by

adding compensation provisions for wheat straw producers and wheat seed

growers and seed companies for the loss in value of their straw and

seed due to the regulations for Karnal bunt. As discussed in the

regulatory impact analysis referred to above, losses to seed growers

were estimated to be about $6 million; losses to straw producers were

estimated at about $200,000. The regulatory flexibility analysis

referred to above discusses the impact of the Karnal bunt regulations

on small entities. The majority of the affected entities in the

regulated areas have been determined to be small entities. Compensation

in the amount of $10.8 million has been apportioned for compensation to

seed producers and companies for the loss in value of their seed. Straw

compensation was made available through funds appropriated for the loss

in value of grain (see table below).

Estimated Loss in Value Due to Karnal Bunt Regulations, 1995-96 Crop

Year

[In million dollars]

------------------------------------------------------------------------

Estimated

Action loss in

value

------------------------------------------------------------------------

1. Plowdown of NM and TX fields planted with infected seed... $1.2

2. KB-positive grain diverted to animal feed market.......... 4.2

3. KB-negative grain that experienced loss in value.......... \1\ 28.0

4. Cost of sanitizing storage facilities..................... 0.3

5. Millfeed treatment of KB-negative grain................... 1.6

6. Loss in value of seed..................................... 6.0

7. Loss in value of straw.................................... 0.2

8. Loss related to cleaning and disinfecting of combine

harvesters.................................................. 2.0

----------

Total.................................................. 44.0

------------------------------------------------------------------------

\1\ $28 million is the potential maximum amount of loss in value of

uninfected wheat.

Executive Order 12372

This program/activity is listed in the Catalog of Federal Domestic

Assistance under No. 10.025 and is subject to Executive Order 12372,

which requires intergovernmental consultation with State and local

officials. (See 7 CFR part 3015, subpart V.)

Executive Order 12988

This proposed rule has been reviewed under Executive Order 12988,

Civil Justice Reform. If this proposed rule is adopted: (1) All State

and local laws and regulations that are inconsistent with this rule

will be preempted; (2) no retroactive effect will be given to this

rule; and (3) administrative proceedings will not be required before

parties may file suit in court challenging this rule.

Paperwork Reduction Act

In accordance with section 3507(d) of the Paperwork Reduction Act

of 1995 (44 U.S.C. 3501 et seq.), the information collection or

recordkeeping requirements included in this proposed rule have been

submitted for approval to the Office of Management and Budget (OMB)

under OMB control number 0579-0121 in conjunction with APHIS Dockets

96-016-15 and 96-016-17, with two exceptions.

The first exception is the proposed requirement that growers and

handlers submit to FSA a Karnal Bunt

[[Page 40761]]

Compensation Claim form. This information collection was submitted for

approval to OMB in conjunction with Docket 96-016-15 for 1996-1997

compensation claims, but not for 1995-1996 compensation claims (the

crop season covered by this docket). The second exception is that, in

order for FSA to complete the Karnal Bunt Compensation Claim form, the

local FSA office would have to complete a Karnal Bunt Compensation

Worksheet for 1995-1996 Propagative Wheat (PPQ Form 928). Completion of

the worksheet would be necessary in order to calculate the rate of

compensation in accordance with the regulations proposed in this

docket. This worksheet would be completed using the information

collected by FSA in completing the Karnal Bunt Compensation Claim form.

This information collection was not submitted to OMB in conjunction

with APHIS Dockets 96-016-15 and 96-016-17 because the need for FSA to

complete a Karnal Bunt Compensation Worksheet for 1995-1996 Propagative

Wheat is particular to this proposed rule.

Estimate of burden: Public reporting burden for this collection of

information is estimated to average .46 hours per response.

Respondents: Growers and seed companies.

Estimated number of respondents: 122.

Estimated number of responses per respondent: 3.9.

Estimated total annual burden on respondents: 216 hours.

We are soliciting comments from the public (as well as affected

agencies) concerning the information collection and recordkeeping

requirements in this proposed rule, and concerning the information

collection in support of the National Karnal Bunt Survey. We need this

outside input to help us:

(1) Evaluate whether the proposed information collection is

necessary for the proper performance of our agency's functions,

including whether the information will have practical utility;

(2) Evaluate the accuracy of our estimate of the burden of the

proposed information collection, including the validity of the

methodology and assumptions used;

(3) Enhance the quality, utility, and clarity of the information to

be collected;

(4) Minimize the burden of the information collection on those who

are to respond (such as through the use of appropriate automated,

electronic, mechanical, or other technological collection techniques or

other forms of information technology, e.g., permitting electronic

submission responses).

Information collection in support of the National Karnal Bunt Survey:

Please send written comments to the Office of Information and

Regulatory Affairs, OMB, Attention: Desk Officer for APHIS, Washington,

DC 20503. Please state that your comments refer to Docket No. 96-016-

21. Please send a copy of your comments to: (1) Docket No. 96-016-21,

Regulatory Analysis and Development, PPD, APHIS, suite 3C03, 4700 River

Road Unit 118, Riverdale, MD 20737-1238, and (2) Clearance Officer,

OIRM, USDA, room 404-W, 14th Street and Independence Avenue SW.,

Washington, DC 20250. A comment to OMB is best assured of having its

full effect if OMB receives it within 30 days of publication of this

proposed rule.

Copies of this information collection can be obtained from: Ms.

Cheryl Jenkins, APHIS Information Collection Coordinator, (301)734-

5360.

List of Subjects in 7 CFR Part 301

Agricultural commodities, Plant diseases and pests, Quarantine,

Reporting and recordkeeping requirements, Transportation.

Accordingly, 7 CFR part 301 would be amended as follows:

PART 301--DOMESTIC QUARANTINE NOTICES

1. The authority citation for part 301 would continue to read as

follows:

Authority: 7 U.S.C. 147a, 150bb, 150dd, 150ee, 150ff, 161, 162,

and 164-167; 7 CFR 2.22, 2.80, and 371.2(c).

2. In Sec. 301.89-14, paragraph (f)(2), the reference to

``paragraph (d)'' would be removed both times it appears and a

reference to ``paragraph (f)'' would be added in its place.

3. In Sec. 301.89-14, paragraphs (d), (e), and (f) would be

redesignated as paragraphs (f), (g), and (h) respectively; and new

paragraphs (d), (e), and (i) would be added to read as set forth below.

Sec. 301.89-14 Compensation for the 1995-1996 crop season.

* * * * *

(d) Growers and seed companies that sold propagative wheat. Growers

of and seed companies with wheat grown for propagative purposes are

eligible for compensation for the loss in value of their wheat, in

accordance with this section, if the wheat was grown in a State where

the Secretary has declared an extraordinary emergency, and if the wheat

was grown in an area of that State that was regulated for Karnal bunt

or under Emergency Action Notification (PPQ Form 523) for Karnal bunt

during the 1995-1996 crop season.

(1) Growers who sold propagative wheat under contract. Growers of

1995-1996 crop season wheat grown for propagative purposes are eligible

to receive compensation as described in paragraphs (d)(1)(i) and

(d)(1)(ii) of this section if they sold the wheat under contract to a

seed company. However, compensation will not exceed $2.80 per bushel

under any circumstances.

(i) If the wheat was grown under contract and a price was

determined in the contract on or before March 1, 1996, and the contract

price was not honored by the seed company, the compensation rate will

equal the contract price (CP) including the seed premium specified in

the contract (SP)(contract) minus the higher of either the salvage

value (SV), as described in paragraph (d)(6) of this section, plus the

actual seed premium received by the grower (SP)(actual), or the actual

price received by the grower (AP) plus the actual seed premium received

by the grower (SP)(actual). In each case, the amount of the actual

price or the salvage value of the propagative wheat will include the

value of any proceeds accrued through insurance claims, judgments, or

from any other source. The equation for this compensation is:

Compensation rate = [CP + SP(contract)]--[higher of (SV + SP(actual))

or (AP + SP(actual))].

(ii) If the wheat was grown under contract and a price was

determined in the contract after March 1, 1996, the compensation rate

will equal the estimated market price for grain (EMP) plus the seed

premium specified in the contract (SP)(contract) minus the higher of

either the salvage value (SV), as described in paragraph (d)(6) of this

section, plus the actual seed premium received by the grower

(SP)(actual), or the actual price received by the grower (AP) plus the

actual seed premium received by the grower (SP)(actual). In each case,

the amount of the actual price or the salvage value of the propagative

wheat will include the value of any proceeds accrued through insurance

claims, judgments, or from any other source. The equation for this

compensation is: Compensation rate = [EMP + SP(contract)]--[higher of

(SV + SP(actual)) or (AP + SP(actual))]. The estimated market price

will be calculated by APHIS for each class of wheat, taking into

account the prices offered by relevant terminal markets (animal feed,

milling, or export) for the period between May 1 and June 30, 1996,

with adjustments for transportation and other handling costs.

[[Page 40762]]

(2) Growers who sold propagative wheat for nonpropagative purposes.

Growers of 1995-1996 crop season wheat grown for propagative purposes

who sold the wheat for nonpropagative purposes are eligible to receive

compensation in accordance with paragraphs (d)(2)(i) and (d)(2)(ii) of

this section.

(i) If the grower has not claimed compensation under paragraph (b)

of this section, the compensation rate will equal the estimated market

price for grain (EMP) minus the actual price received by the grower

(AP), plus the seed premium specified in the contract the grower had

with a seed company (SP). In each case, the amount of the actual price

of the propagative wheat will include the value of any proceeds accrued

through insurance claims, judgments, or from any other source. The

equation for this compensation is: Compensation rate = (EMP--AP) + SP.

Growers who claim compensation under this paragraph may not claim

compensation under paragraph (b) of this section.

(ii) If the grower has claimed compensation under paragraph (b) of

this section, the compensation rate will equal the premium specified in

the contract the grower had with a seed company.

(3) Seed companies that sold propagative wheat for nonpropagative

purposes and that have not claimed compensation. Seed companies with

1995-1996 crop season wheat grown for propagative purposes and seed

companies with propagative wheat inventories in their possession that

were unsold as of March 1, 1996, are eligible to receive compensation

as described in paragraphs (d)(3)(i) and (d)(3)(ii) of this section if

the propagative wheat was sold for nonpropagative purposes and if the

seed company has not claimed compensation under paragraph (b) of this

section. Seed companies that claim compensation under paragraph

(d)(3)(i) or (d)(3)(ii) of this section may not claim compensation

under paragraph (b) of this section.

(i) If the wheat was grown in the 1995-1996 crop season, was under

contract, and the seed company honored the contract by paying the

grower the full contract price, including the seed premium, the

compensation rate will equal the estimated market price for grain (EMP)

plus the seed margin (SM) minus the higher of either the actual price

received by the seed company (AP) or the salvage value (SV), as

described in paragraph (d)(6) of this section. The equation for this

compensation is: Compensation rate = EMP + SM--(higher of AP or SV).

The seed margin is $4.50 per bushel for private variety seed and $2.40

per bushel for public variety seed. In each case, the amount of the

actual price or the salvage value of the propagative wheat will include

the value of any proceeds accrued through insurance claims, judgments,

or from any other source. However, compensation will not exceed $7.00

per bushel for private variety seed and $4.90 per bushel for public

variety seed under any circumstances.

(ii) If a seed company had wheat inventories from past crop seasons

on hand as of March 1, 1996, the compensation rate will equal the

estimated market price for grain (EMP) plus the seed margin (SM) minus

the higher of either the actual price received by the seed company (AP)

or the salvage value (SV), as described in paragraph (d)(6) of this

section. The equation for this compensation is: Compensation rate = EMP

+ SM--(higher of AP or SV). The seed margin is $4.50 per bushel for

private variety seed and $2.40 per bushel for public variety seed. In

each case, the amount of the actual price or the salvage value of the

propagative wheat will include the value of any proceeds accrued

through insurance claims, judgments, or from any other source. However,

compensation will not exceed $7.00 per bushel for private variety seed

and $4.90 per bushel for public variety seed under any circumstances.

(4) Seed companies that sold propagative wheat for nonpropagative

purposes and that have claimed compensation. Seed companies with 1995-

1996 crop season wheat grown for propagative purposes and seed

companies with propagative wheat inventories in their possession that

were unsold as of March 1, 1996, are eligible to receive compensation

as described in this paragraph if the propagative wheat was sold for

nonpropagative purposes and if the seed company has claimed

compensation under paragraph (b) of this section. The compensation rate

will equal the seed margin. The seed margin is $4.50 per bushel for

private variety seed and $2.40 per bushel for public variety seed.

(5) Seed companies that sold propagative wheat for propagative

purposes. Seed companies with 1995-1996 crop season wheat grown for

propagative purposes and seed companies with propagative wheat

inventories in their possession that were unsold as of March 1, 1996,

are eligible to receive compensation as described in this paragraph if

the propagative wheat was sold for propagative purposes. The

compensation rate will equal the estimated market price for grain (EMP)

plus the seed margin (SM) minus the higher of either the actual price

received by the seed company (AP) or the salvage value (SV), as

described in paragraph (d)(6) of this section. In each case, the amount

of the actual price or the salvage value of the propagative wheat will

include the value of any proceeds accrued through insurance claims,

judgments, or from any other source. The equation for this compensation

is: Compensation rate = (EMP + SM)--(higher of AP or SV). The seed

margin is $4.50 per bushel for private variety seed and $2.40 per

bushel for public variety seed. However, compensation will not exceed

$7.00 per bushel for private variety seed and $4.90 per bushel for

public variety seed under any circumstances.

(6) Salvage value. Salvage values will be determined as follows:

(i) If the wheat is positive for Karnal bunt and is sold for use as

animal feed, salvage value equals $6.00 per hundredweight or $3.60 per

bushel for all classes of wheat.

(ii) If the wheat is positive for Karnal bunt and is sold for a use

other than animal feed, salvage value equals whichever is higher of the

following: the average price paid in the region of the regulated areas

where the wheat is sold for the relevant class of wheat (meaning type

of wheat, such as durum or hard red winter) for the period between May

1 and June 30, 1996; or, $3.60 per bushel.

(iii) If the wheat is negative for Karnal bunt and is sold for any

use, salvage value equals whichever is higher of the following: the

average price paid in the region of the regulated areas where the wheat

is sold for the relevant class of wheat (meaning type of wheat, such as

durum or hard red winter) for the period between May 1 and June 30,

1996; or, $3.60 per bushel.

(7) To claim compensation. Compensation payments for claims made

under paragraph (d) of this section will be issued by the Farm Service

Agency (FSA). Claims for compensation must be received by FSA on or

before [date 60 days after effective date of final rule]. The

Administrator may extend this deadline, upon request in specific cases,

when unusual and unforeseen circumstances occur which prevent or hinder

a claimant from requesting compensation on or before that date. To

claim compensation, a grower or seed company must submit to the local

FSA county office a Karnal Bunt Compensation Claim form, provided by

FSA. If the wheat was grown in an area that is not a regulated areas,

but for which an Emergency Action

[[Page 40763]]

Notification (PPQ Form 523)(EAN) for Karnal bunt has been issued, the

grower or seed company must submit a copy of the EAN. A grower or seed

company must also submit to the local FSA county office a copy of the

contract under which the wheat was grown; a copy of the Karnal bunt

certificate issued by APHIS that shows the Karnal bunt test results; a

copy of the receipt for the final sale of the wheat, showing the

intended use for which the wheat was sold, total bushels sold, and the

total price received by the grower or seed company; and verification as

to the actual (not estimated) weight of the wheat for which

compensation is being claimed (such as a copy of the limited permit

under which the wheat is being moved, or other verification). In

addition, a seed company that is claiming compensation on seed

inventories must certify to FSA that the propagative wheat was in the

seed company's possession as of March 1, 1996.

(e) Other seed company compensation for propagative wheat. Seed

companies are also eligible to receive compensation under the following

circumstance: If a seed company is not able to or elects not to sell

1995-1996 crop season wheat grown for propagative purposes or

propagative wheat inventories in their possession that were unsold as

of March 1, 1996, the compensation rate will equal $7.00 per bushel for

private variety seed and $4.90 per bushel for public variety seed.

Compensation will only be paid if the seed company has destroyed the

wheat by burying it in a sanitary landfill or other site that has been

approved by APHIS. The compensation will be issued by the Farm Service

Agency (FSA). To claim compensation, a seed company must submit to the

local FSA county office a Karnal Bunt Compensation Claim form, provided

by FSA. If the wheat was grown in an area that is not a regulated

areas, but for which an Emergency Action Notification (PPQ Form

523)(EAN) for Karnal bunt has been issued, the seed company must submit

a copy of the EAN. A seed company must also submit to the local FSA

county office a copy of the contract under which the wheat was grown

and verification of how much wheat was buried, in the form of a receipt

from the sanitary landfill or verification signed by an APHIS

inspector. In addition, a seed company that is claiming compensation on

seed inventories must certify to FSA that the propagative wheat was in

the seed company's possession as of March 1, 1996. Claims for

compensation must be received by FSA on or before [date 60 days after

effective date of final rule]. The Administrator may extend this

deadline, upon request in specific cases, when unusual and unforeseen

circumstances occur which prevent or hinder a claimant from requesting

compensation on or before that date.

* * * * *

(i) Wheat straw producers. Producers of wheat straw (either growers

who bale their own wheat straw or individuals contracted by growers to

remove wheat straw from the growers' fields) made from wheat grown in

the regulated areas in the 1995-1996 crop season are eligible to

receive compensation on a one-time-only basis at the rate of $1.00 per

80-pound bale or $1.25 per hundredweight. Producers are eligible for

compensation regardless of whether or not the straw is sold, but the

straw must have been produced under contract. Compensation payments

will be issued by the Farm Service Agency (FSA). To claim compensation,

a wheat straw producer must submit a Karnal Bunt Compensation Claim

form, provided by FSA, and a copy of the contract under which the wheat

straw was produced to the local FSA county office. Claims for

compensation must be received by FSA on or before [date 60 days after

effective date of final rule]. The Administrator may extend this

deadline, upon request in specific cases, when unusual and unforeseen

circumstances occur which prevent or hinder a claimant from requesting

compensation prior to that date.

Done in Washington, DC, this 24th day of July 1997.

Terry L. Medley,

Administrator, Animal and Plant Health Inspection Service.

[FR Doc. 97-20005 Filed 7-29-97; 8:45 am]

BILLING CODE 3410-34-P